Catch problems early in a lower cost setting! Not so simple, explain Harvard researchers who found 58% of retail clinic visits did not replace physician appointments, increasing costs.

Have employers found any health care gold at the end of a rainbow? Little, according to Northwestern University researchers in a recent American Journal of Accountable Care article. “Efforts to date have produced few promising strategies,” they concluded.

Does that mean employers should stop chasing rainbows? On the contrary! We need more employers chasing more rainbows. New rainbows. “No one really knows what will or won’t work. And we won’t know until we try some things,” urges Wal-Mart’s benefits leader, Sally Welborn.

More important than chasing rainbows, employers must become better health care buyers. Leveraging nearly $650 billion in annual spending, employers need to negotiate harder for better deals, form alliances to master the supply chain, work locally for greater value, align with government payment reforms wherever possible and contract directly with innovative providers.

Employers Negotiating Better

Given the money they spend on health care and their negotiating prowess as business people, employers should get better health care deals, especially on expensive drugs. They’re not, says Dr. Robert Galvin, formerly of General Electric and now CEO of Equity Healthcare.

“Baffling” is how he describes what he calls employers’ “weak-kneed behavior”. “No other group has a greater stake in buying smarter. But employers have always been reluctant actors in the health care system, as they feel out of their depth,” he explains.

Most employers are not in the health care business. Still, Galvin wants them to bargain more effectively with pharmacy benefit management (PBM) firms and health insurers. These expert intermediaries, he cautions, do not fully align their interests with those of their employer clients. At Equity Healthcare, Galvin negotiates for private-equity-owned employers like Toys R Us, Sea World, La Quinta and J.Crew.

Employers Forming Alliances

Large employers have been at the forefront of attempting to change health care. Still, even the pioneers and expert buyers among them are dissatisfied with their progress. Twenty of them have formed the Health Transformation Alliance, including value based insurance design pioneer Pitney Bowes and Caterpillar, which maintains its own prescription drug formulary.

“We’ve done what we can as individual companies. By joining together, we can do more,” said Marc Reed chief administrative officer of Verizon. The Alliance will serve as part of each company’s health strategy, fostering increased innovation, better data analyses and greater leverage to make the “current multilayered supply chain more efficient.” Their first project, slated for 2017: More affordable prescription medications.

Despite the involvement of companies like Pitney Bowes, Caterpillar, Verizon and other blue chip employers, some observers have given the Alliance a ho hum reception. Noting the already “crowded field” of business health groups, Forbes health correspondent Bruce Japsen observed, “it is just one of a number of similar, overlapping efforts that have so far failed to keep the rate of employer medical cost increases even on par with general inflation.”

Employers Working Locally

Prominent among other efforts are regional business health coalitions, represented nationally by the National Business Coalition on Health (NBCH). Board chair, Karen van Caulil, who also serves as CEO of the Florida Health Care Coalition, responded to the Alliance announcement with a suggestion.

“Our coalitions have been doing this work for years in their respective markets and have the regional intelligence and boots on the ground to make a difference. Many of the companies engaged in this new alliance are not involved in the regional coalitions and we would welcome them to play a more active role to bring about change in the communities where their employees live and work.”

The St. Louis Business Health Coalition also is the key driver of the Midwest Health Initiative (MHI), a broad-based, collaboration involving providers, payers, citizen groups, labor unions and employers. MHI stewards a data asset on regional on disease prevalence, care quality, and treatment patterns

Employers Aligning Nationally

On a national level, incoming NBCH CEO Michael Thompson believes “longer term reform, frankly, is going to come from the private sector aligning with the public sector,” which must take the lead. There is, he says, “a dire need for public programs like Medicare and Medicaid to get control of the situation.” Business should work at the local level, supporting engagement and driving change in their communities.

Such alignment could ensure health care purchasers – government and private – send clear and consistent signals to providers. However, it only makes sense with well-designed, proven payment models suitable for private sector application.

However, few employers currently are engaged in the Health Care Payment Learning and Action Network (HCP-LAN) established by CMS for public-private collaboration on value based payment initiatives. Pleading with employers to get involved, Wal-Mart’s Welborn says, “We need to be at the table with our best guess about what might work and then be willing to take a gamble, pilot a few ideas, and share outcomes.”

“We are highly encouraged by the willingness of our health system partners to engage with us and make investments that will support the changes needed to better deliver care, says Jeff White, Boeing’s director of health care strategy and policy.

Employees still have a choice between a Preferred Partnership and a more traditional plan. However, to encourage participation in the former, Boeing provides employees with incentives such as free primary care visits, lower employee paycheck contributions and higher company contributions to health savings accounts.

Participation has reached 35 percent in the Seattle area, where Boeing first launched the program, and ranges between 15 and 30 percent in the remaining markets. According to White, employee satisfaction is high, averaging 8.5 out of 10.

Intel, another, large, direct-contracting employer, “believes it is time for employers to work more directly to transform the payment and delivery systems for healthcare.” It has engaged directly and deeply in benefit design and delivery with Presbyterian Healthcare Services for its New Mexico employees.

Other large employers, like Lowes, Wal-Mart and McKesson, are participating in an Employer Centers of Excellence initiative through the Pacific Business Group on Health (PBGH) . They send employees directly to nationally recognized institutions like Johns Hopkins and Cleveland Clinic for orthopedic surgery and cardiac care.

Employers need not be large to contract directly – and successfully – with health systems, as employers of all sizes have found in Springfield, MO. There, the city government, local utilities, the public schools and Bass Pro Shops have deals with Mercy Springfield, which has been direct contracting with employers for 20 years. In fact, Mercy’s direct to employer business is its largest contract group.

Four years ago, Mercy began to accept limited risk. “We will give you basically a target and guarantee you less [cost] than where you’d expect to be in the next year,” David Cane, Mercy’s regional vice president of payer relations and contracting, explained to John Morrissey of Health Progress. “And if we don’t reach that, then at the end of the year, we’ll just write you a check for the difference, up to where the target was.” Morrissey reports that Mercy has yet to write a check.

Mercy apparently has a knack for working directly with employers. The Springfield hospital is one of the select few participating in the PBGH Centers of Excellence initiative. Meanwhile, the Mercy system in St. Louis, of which Mercy Springfield is a part, is Boeing’s direct contracting partner in St. Louis.

Perhaps the best way for an employer to become a better buyer is to collaborate with a better provider and together chase rainbows.

An intriguing question emerged from last week’s merger announcement from Walgreens Boots Alliance and Rite Aid. Led by CEO Stefano Pessina and his largely European executive team, will Walgreens be purveyor focused on retail sales or provider engaged with a transforming U.S. health care system?

The signals are mixed. A tea-leaf reading of last week’s investor call suggests Walgreens is destined to be a purveyor, focused on selling products and services. Today, however, Walgreens announced a big technology move that points to a provider future, closely integrated with payers and providers.

Purveyor or provider? Read on.

Tobacco: To Sell or not to Sell

“Are you considering eliminating tobacco,” Barclays Capital analyst Meredith Adler asked Walgreens president Alex Gourley during the investor call as the company fielded questions about earnings and the merger.

Gourley had just praised RiteAid for its new, sales-increasing wellness format, saying it was an opportunity for Walgreens, which also is seeing success with its new health, wellness and beauty positioning.

“It seems pretty clear,” said Adler, explaining her question, “that providers and payers feel uncomfortable working with a retail pharmacy that still sells tobacco.” In the background was the 2014 tobacco sales halt of CVS Health, which boasts 49 clinical affiliations, including Cleveland Clinic.

Gourley’s answer: No.

Walgreens would instead continue investing in smoking cessation. Anyway, he noted, only about three percent of all tobacco sales occur in a drugstore. He did not pivot to emphasize how Walgreens is working with providers and payers, notwithstanding tobacco sales.

A tea-leaf saying “purveyor”? Perhaps.

Outposts in Seattle

Gourley could easily have drawn the analyst’s attention to a Walgreens announcement just two months previously. In August, Walgreens and Seattle-based Providence Health & Services launched a new “strategic clinical collaboration.”

Providence will own and operate clinics in 25 Washington and Oregon Walgreens stores under its Providence and Swedish brand names. The first three will open in early 2016, with the remainder following in two years.

Rite Aid made a similar move in the Seattle market in May when it announced a joint venture between its RediClinic subsidiary and MultiCare Health System. The joint venture will operate clinics in 11 stores staffed by board certified MultiCare Nurse Practitioners in collaboration with MultiCare affiliated physicians.

Seattle, home to only three CVS stores, will provide a sheltered environment for Walgreens and Rite Aid to test the strategy of developing “deeper and more strategic relationships” with health systems. In particular, Providence is quite a catch, having directly contracted with Boeing to provide health care for the aircraft maker’s employees.

The EpicCare Connection

However, the nation’s 1,000 CVS MinuteClinics dwarf both Walgreens 400 Healthcare Clinics and Rite Aid’s small number of in-store RediClinics. Surpassing 25 million patient visits since the opening of its first clinic, CVS says it is opening three new MinuteClinics a week. Aiming for 1,500 clinics by 2017, CVS is acquiring all of Target’s 1,660 pharmacies and 80 clinics.

CVS is converting all of its MinuteClinics to the market leading EpicCare electronic medical records (EMR) system. Used broadly across health care, Epic also has strong interoperability with other EMR systems. This will provide seamless data exchange with most American hospitals.

“EpicCare will help us work more closely with physician practices as part of the medical home team, facilitate co-management of patients, and advance our mission to make health care more accessible, convenient and affordable for Americans,” said MinuteClinic chief medical officer Nancy Gagliano, M.D.

Dr. Patrick Carroll agrees. Today, the chief medical officer for Walgreens Healthcare Clinics announced the clinics would begin moving to EpicCare early next year. “As our clinics play an increasingly important role in health care, supporting the health care system, provider practices and patients’ medical homes, care coordination can be critical,” he echoed.

So, a provider future for Walgreens? It certainly looks like it. “This will benefit our patients, clinic providers and partners, and serves as an instrumental part of our strategic growth plan [emphasis added],” explained Carroll.

Confusing Signals

However, as recently as May, Walgreens quietly shuttered 35 clinics, a move two former employees described to Crains Chicago Business as signaling “uncertainty whether Walgreens really wants to spend more on primary care and in particular upgrading the clinics’ electronic medical record systems.” Today’s announcement erases some of that uncertainty, at least with respect to the EMR system.

In Seattle, Walgreens will provide in-store space, overseeing any needed build out. Providence will be using its own Epic system. “Patients will experience a seamless patient experience through our existing electronic health record system, providing direct connectivity to the clinics and billing systems, which will ensure better continuity of patient care and collaboration among providers,” said Providence senior vice president of physician services Mike Waters. Now, Walgreens will be able to connect directly.

Convincing Collaborations

In Seattle, a provider land lord; in Tampa, still a provider. There, Walgreens partners with a multi-specialty practice, assuming risk in an accountable care organization (ACO), Diagnostic Clinic Walgreens Well Network. Serving 7,500 patients, the ACO saved $1.5 million or 2% in costs. However, Walgreens has exited ACO partnerships with Baylor Scott & White in the Dallas-Fort Worth area and New Jersey’s Advocare. The company continues a clinical affiliation with Baylor Scott & White.

In Baltimore, Walgreens has a long-standing relationship with Johns Hopkins Medicine (JHM). The company provides grants for population health research overseen by a joint committee. Two years ago, it opened a store, including a Healthcare Clinic, adjacent to the JHM campus. In this case, Walgreens’ board certified nurse practitioners staff the clinic, although they and company pharmacists can work with JHM faculty.

Rite Aid’s Health Alliance program should dovetail nicely with Walgreens provider collaboration initiatives. The program brings together physicians, pharmacists and special care coaches to provide care and support to individuals with chronic and poly-chronic health conditions, helping them achieve health improvement goals established by their physicians.

Eight provider organizations currently are participating in Health Alliance, which leverages Rite Aid’s population health subsidiary, HealthDialog. Another 11 reportedly are be interested. On average, patients participating in the Rite Aid Health Alliance are 36% more adherent to their medications; they have lost an average of 7.7 pounds; they have a 39% reduction in blood pressure; and they have lowered their blood sugar by 36%, reports Drug Store News.

Big Bet on Consumer Technology

Rite Aid is also bringing Cleveland Clinic physicians into some of its Ohio stores via telehealth start up HealthSpot. Installed in the stores is a kiosk, enclosed for privacy, which includes a video connection with a physician and the capability to take and transmit vital signs to the physician.

Opting for mobile, Walgreens is using the Pager platform, designed by an early Uber architect, to connect customers with physicians. It also is relying on the MDLive platform for telemedicine, and working with WebMD on a wellness app, and with PatientsLikeMe enabling people to share medication experiences with each other.

Walgreens has been a leader in using technology to engage its customers. Its app is the third most downloaded retail app in the U.S. and the number one brick and mortar pharmacy app, reports mobihealthnews. Fourteen million people visit a Walgreens app or website each week and Walgreens fills more than one mobile prescription every second.

Walgreens’ Epic Catch-Up

However, until the EpicCare announcement today, Walgreens lagged in using technology to engage providers. Its electronic record system could not easily communicate with other systems, forcing stores to use secure fax and email to communicate with physicians and other providers. That raised serious questions about the future of its provider collaborations and role as a provider.

Now, EpicCare means Walgreens can be more than a purveyor. It can also be a provider, fully integrated into the new health care.

Come the fall, when benefit enrollment is in full swing, Boeing employees in St. Louis and South Carolina will have a new option – one of their local health systems, in addition to current coverage alternatives from Blue Cross and Blue Shield (BCBS) plans.

Boeing announced last week that it has directly contracted with Mercy Health Alliance, an accountable care organization (ACO) in the St. Louis bi-state region, and the Roper St. Francis Health Alliance ACO in South Carolina’s coastal low country. Express Scripts is managing the pharmacy benefit and the Health Care Service Corporation of BCBS Illinois will help with administration and paper work.

Greater Savings, Improved Health, Better Experience

By working directly with the ACOs, Boeing hopes to save money for itself and employees, improving employee health and enhancing service for a more positive employee experience. Boeing South Carolina executive Beverly Wyse told WSCC-TV the company is applying the same logic to healthcare as it does in building Dreamliners, with a commitment to more quality, reliability and lower costs.

Boeing estimates employees will save $350 to $1,000 per person per year on monthly payments, deductibles, copays and prescription costs. Mercy executive Donn Sorenson told the St. Louis Business Journal Mercy could cut per family health care costs by more than half to $6,000 from the large-employer average of $15,849. He plans to do it with greater attention to preventative and maintenance care.

In negotiating Preferred Partner ACO contracts, Boeing puts a high priority on access and convenience. Primary care appointments are available for acute conditions same day and within 72 hours for any condition. The wait for a specialist appointment can be no longer than 10 days. In addition, each Preferred Partner provides extended hours, a dedicated phone line with care navigators, a member website and phone apps.

Instead, BCBS Illinois collects and provides data, in addition to performing administrative services as in St. Louis and South Carolina. Boeing’s relationship with BCBS Illinois could be a plus, if the manufacturer decides to implement a private exchange. BCBS Illinois has its own, Blue Dimensions, private exchange platform, which offers “many of the same features of online shopping.”

Boeing’s Health Care Endgame

In fact, the Seattle competition may foreshadow Boeing’s endgame, according to Tory Wolff of Recon Strategy. Boeing “is setting up its market to transition to a provider-consumer type market. We do not expect it to be too long before Boeing starts transitioning its employees to defined contribution.” The impact would be substantial. The company spends $2.5 billion on health care for 480,000 employees, dependents and retirees in 48 states.

Assuming Wolff is right, look for Virginia Mason to become a third option for Boeing’s Seattle employees. In St. Louis, SSM and its newly acquired Saint Louis University Hospital could become a second option. In time, BJC Healthcare/Washington University Physicians will conclude their shared brand – without an insurer intermediary — can attract more Boeing patients. In South Carolina and other major Boeing locations, expect the same.

Private Exchanges – Small but Growing Rapidly

While Boeing approaches a private exchange, where employees get a broad range of coverage options and a defined company contribution, other large employers have already made the plunge. These include Walgreen Co., CVS Health Corp. and IBM, at least for retiree benefits.

Admittedly, private exchange utilization is still extremely small. There are six million participants this year, up from three million in 2014. However, by 2018, 40 million people likely will choose coverage on a private exchange, according to an Accenture study.

Aon Hewitt attributes the projected surge to a number of factors, including lower cost. The average annual cost increase to employers completing a second year renewal 2.6%. Large employers with similar benefit structures saw increases of 6.5% to 8% this year.

However, the most significant driver is a 40% excise tax on “Cadillac” health benefit plans scheduled for 2018 implementation under the Accountable Care Act. Imposed on family and individual plans respectively costing $27,500 and $10,200, the tax could impact as many as 48% of employers in its first year, according to the benefits consulting firm Towers.

According to Accenture, private exchanges are a “compelling alternative” for employers who want to accomplish two goals simultaneously – control cost and administrative burdens, while still providing health coverage. They are very aware that 76 percent of consumers see health insurance as the primary or an important factor for continuing to work at their current employer. In fact, employer involvement in facilitating health benefits matters as much if not more than the employer’s financial contribution.

Sam’s Club Now, Amazon Soon?

Typical operators of private exchanges include health insurance companies and benefit consulting firms. However, small employers may rely on an unlikely source to provide their employees with coverage options, Sam’s Club, which has collaborated with Aetna to offer the Aetna Marketplace for Sam’s Club. Employers can offer a defined contribution plan or make a flat, pre-tax contribution an employee can apply to his or her plan choice. (Recently proposed IRS rules could negatively affect the latter option.)

Can Amazon be far behind? Perhaps not. Both Wal-Mart and Amazon are engaged in a fierce battle for consumer loyalty. There is no public evidence suggesting an Amazon move toward offering a private exchange. However, Amazon Web Services has been touting its deep association with Oscar Health, a technology-driven, health insurance start-up, which could be serving as a learning platform for Amazon.

What is surely not far behind is the end of group health insurance, supplanted by a rapidly growing retail market for health coverage. As blogger Joe Markland has observed, “a single 10,000 person employer will become a firm with 10,000 retail buyers.” In addition to the 40 million in private exchanges by 2018, Accenture predicts there will be 31 million participants in public exchanges, up from 15 this year, for an overall 71 million consumers.

Retail Market Driving Insurance Mergers

This burgeoning retail market is the primary driving force behind the mergers of Anthem and Cigna, and Aetna and Humana, respectively. Yes, greater size will provide negotiating advantage, but within a model that is quickly becoming obsolete. In fact, insurance industry critic Wendell Potter observed last year, “If the Boeing strategy flies, health insurers as middlemen will be history.”

Agreeing, Leavitt Partners notes that employers want benefit options that will drive a world-class, healthy, productive workforce.” However, it concludes, “the current composition of intermediaries cannot meet these demands on yesterday’s technology and workflows.”

Instead, health insurers are racing to avoid commoditization. They have to reposition to add value differently in the new retail paradigm. Instead of pounding out reimbursement deals with providers, they will need to collaborate, creating differentiated coverage alternatives for retail marketplaces.

More important than added scale, success for these insurer mergers will depend on the integration and expansion of initiatives such as: